Are comparison sites failing consumers?

To what extent are price comparison websites in the insurance sector failing consumers’ expectations and breaching regulatory standards? Jessica Arrol, solicitor in the financial services team at Speechly Bircham, comments following a recent review by the Financial Conduct Authority (FCA) and says the FCA has made clear that its review has relevance across the board for comparison services for other financial services products.

A number of price comparison websites in the general insurance sector are failing to meet consumers’ expectations of them and, in some cases the FCA’s regulatory standards according to the regulator’s newly published thematic review. The FCA has asked price comparison websites to take action on the issues identified by the review to guarantee they are meeting the required standards to ensure customers get a product which meets their needs.

What is the background to the review?

The thematic review of price comparison websites in the insurance sector follows on from guidance published by
the Financial Services Authority on the same subject in 2011. The FCA felt it was necessary to carry out a review of the current state of the sector because the use of price comparison websites by consumers for the purchase of general insurance products has become increasingly popular. In fact, the FCA estimates that around one third of all motor policies written in 2013 were sold through price comparison websites. In carrying out the review the FCA wanted to ensure that price comparison websites were delivering fair outcomes to consumers despite their increased popularity.

What was the scope of the review?

The review was carried out between December 2013 and April 2014 and focused on price comparison websites offering retail general insurance products such as private motor, home and travel insurance as these are the types of insurance that are most commonly purchased through a comparison site.

The FCA was focused on looking at whether customers were being given appropriate information to allow them to make an informed decision and to understand the nature of the service provided to them.

What were the main findings of the review?

There were two key areas focused on by the FCA during the thematic review, the first relating to whether appropriate information was being provided to customers. The FCA found that, at present, price comparison websites were not giving customers sufficient product information (or information that was clear and consistent) to allow customers to make informed decisions. As a result consumers were in certain circumstances buying insurance products without understanding their key features. Policy summaries were often limited with regard to information provided, for example customers were often told to ‘check with the insurer’ when looking for more information on a particular policy.

In addition the review found that price comparison websites did not always take reasonable steps to provide appropriate information on policy excesses and add-ons.

The FCA’s research also demonstrates that consumers are price-focused when using a price comparison website and that some consumers mistakenly believed that the extent and quality of cover were largely the same regardless of price. Price comparison websites encouraged the focus on price by presenting this more prominently than other information such as main exclusions and limitations. This sometimes led to consumers buying the cheapest product even if it was not the most appropriate.

The second area of focus related to information regarding the price comparison website itself. The FCA found that price comparison websites did not generally explain their role in the distribution of insurance products or the nature of the service provided. Consumers sometimes believed they were being given advice on a particular product by a price comparison website and that the results they were being shown were the best products for their needs.

Price comparison websites often gave the impression that using the service was free of charge to consumers—however, the FCA found such statements to be misleading. This is because price comparison websites are generally remunerated from fees they charge product providers when a consumer buys a policy, and providers could in fact increase the cost of the insurance product for the consumer to reflect the payment of the fee.

In addition, where they were affiliated with a particular insurer or insurance broker price comparison websites frequently failed to disclose this, which the FCA considers to be bad practice.

Will firms have to change their processes as a result of the review?

Price comparison websites will need to ensure that the interests of their customers are at the heart of how they run their businesses. It will not be enough to simply provide product information to customers any longer—price comparison websites will need to think about whether the way in which the information is disclosed is clear and fair to customers and allows them to make an informed decision on the insurance product. This means that price comparison websites will need to gain a deeper understanding of the insurance products offered on the site, analyse key product terms and bring these to the attention of customers.

In light of this thematic review it is recommended that price comparison websites review the design of their site and the way in which information is presented to ensure that it complies with the recommendations in the paper.

In relation to information on insurance products, price comparison websites should not pre-populate certain fields (such as excess) while search engines may well need to be more sophisticated to find products that specifically match the requirements input by the customer (rather than the cheapest policy). Price comparison websites will also need to consider how to order search results so that these do not give precedence to price. This may well be difficult without giving the impression of ‘recommending’ a certain product, which price comparison websites will want to avoid if they do not have FCA-permission to advise on insurance products.

In terms of information on the price comparison website itself, transparency will be a key concept going forward where information on any relationships with insurance providers or brokers will need to be clearly disclosed together with remuneration structures and details on the precise service being provided to the customer. This must not be hidden away in a ‘legal details’ link but instead be provided to the customer clearly at the outset when they begin using the site.

What advice should lawyers give to their clients?

We recommend that providers of price comparison websites in the insurance sector do the following:

• carry out due diligence on the insurance products offered on the site and really get to grips with the terms of each insurance policy—display key terms clearly and fairly in the product summaries (ambiguous and inconsistent product summaries are no longer acceptable, these will need to be detailed and accurate)

• refrain from presenting the price of a product more prominently than other information provided—clearly point out all of the key terms of the policy (over and above price) including:
  • the level of cover and excess
  • the main exclusions and limitations
  • the different levels of excess across different covers, and
  • the cost of additional fees

• do not allow the technology to pre-populate certain fields for customers such as excess amounts

• customers should not be told to ‘check with the insurer’ or ‘check the policy’ if they ask for further information on a particular feature of a policy—the price comparison website should be able to provide this to them

• clearly disclose the names of any affiliated insurer/broker companies on the website and put in place controls to manage conflicts

• clearly disclose what the role of the price comparison website is at the outset so consumers are not mislead, for example make it clear that no advice is being given

• clearly disclose how the price comparison website is remunerated—ie the product provider pays a fee to the price comparison website

• review the website terms regularly to make sure they are up-to-date—make sure that the terms are clear and easy to read and digest and that they do not contain terms that are unfair to consumers (your website should be designed so that customers must read these before they purchase any insurance via the website)

• carry out regular due diligence on the product providers to ensure they have appropriate permissions and are in compliance with regulatory obligations

• ensure that data security is dealt with in accordance with the relevant law—make any mailing or data processing opt-ins and opt-outs clear and do not word these in a way that is confusing to the customer

• ensure that you have the appropriate regulatory permissions to run the price comparison website

Note that the FCA has also made it clear that the thematic review has relevance across the board for comparison services for other financial services products, therefore the above recommendations apply for similar price comparison website providers.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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